Eric Schmidt, CEO of search giant Google, told an investors group today that the market for targeted advertising is at a very early stage with lots of innovation still to come.

"Google and the rest of the industry are just at the beginning of our ability to target ads. There are many new technologies coming," Schmidt said in a presentation and Q&A session at the Morgan Stanley Technology Conference in San Francisco, which was Webcast live this morning.

Despite a few extremely large companies dominating the search and online ad space (Google, Microsoft, Yahoo), Schmidt said it's too early to talk about consolidation. He pointed to more mature industries, like enterprise software, as better candidates for consolidations. He pointed to Oracle's many moves in consolidating by acquisitions, "and doing a pretty good job as far as I can tell."

But Schmidt predicts an explosion of innovation related to targeted advertising over the next several years. "There are so many new places for targeted advertising, it's not the time for consolidation."

One of those places is mobile phones and devices. Schmidt, who is on the board of Apple, spoke highly of the forthcoming iPhone and mobile phones in general as "the first highly targetable devices."

"The iPhone is an incredible product. It's the first full-featured phone that's a music player, Internet browser and computer," said Schmidt. "I'm sure there will be many more of [these kind of devices] coming."

On the subject of a different platform, Schmidt said about 90 to 95 percent of TV viewers are exposed to random ads. "It's a constant barrage of ads that aren't relevant; pet food for people without pets, baby products for families with out kids. Even a small improvement [in relevancy] would have a very large impact."

He said Google is exploring ways to better target TV advertising and leverage the fact that an increasing number of consumers have IP addressable set top boxes.

As regards Apple , Schmidt noted he is on the board representing shareholders and isn't directing any product strategy. But he applauded Apple for what he called the success of its "clear strategy."

"Google and Apple are doing more things together," said Schmidt. "Apple remains one of the great innovators. We have similar goals and similar competitors."

Speaking more broadly on the shift to software and storage "in the cloud," or at a remote facility, Schmidt said the trend is inevitable. "If you drop your computer, it's a disaster," said Schmidt. "And rational person would want to put their data somewhere else. That transition is happening now."

He also noted that it's a struggle for Google to keep up with demand, because it has more traffic and a larger index than anyone else. "We at Google have a number of shortages inside the company, one of the most acute is data center capacity. Google has made large investments in hosting and storage facilities and proprietary hardware design to help address the problem.

Schmidt said Google would be able to get enough power for the foreseeable future. He said the company is willing to pay a reasonable premium for the "right kind of power" pointing to green technologies and tapping hydro electric plans with excess capacity.